Box X.1: Offering Savings Products to Low Income Population

population in LAC seems to rely more on informal mechanisms with 25.7% of adults keeping savings outside the formal financial system, in cash or in assets (e.g., livestock) compared to 17% in Africa. In the case of Colombia for example, 65% of the low-income population saves in cash. Informal savings mechanisms, such as savings circles or clubs, are used by low- and middle-income families to save and to access loans in several countries, including Mexico, Guatemala, El Salvador, Costa Rica, Panama, Colombia, Peru, and Bolivia. Evidence shows that low-income people participating in savings groups can save around USD100 after the first year of participation, which for many constitutes their first experience in saving money. Therefore, there is an important opportunity for financial institutions, both in LAC and Africa, to reach underserved populations, particularly low-income people, who can save but do not have access to financial products and services that meet their needs and preferences.

It is important to understand such informal financial behaviors and see low-income people as potential clients. There is a lack of information in this field and a pressing need for further research that can help financial entities develop products tailored to this segment of the population. Experiences in LAC could be used to inspire African initiatives (Box X.1). In this regard, innovation plays a key role not only for product development, but also for alternative distribution channels and financial literacy, contributing to the transition of the unbanked into the formal financial sector. For these reasons, efforts to expand access to the formal financial system in LAC, specifically in terms of savings products, have been accompanied by the adoption of new regulations that promote the development of simplified accounts, which entail minimum requirements for opening accounts and lower costs to clients.

One of the first countries to adjust its regulation to incorporate simplified accounts was Colombia. This was part of the Colombian government’s efforts to expand access to financial products and services in the country.2 Other countries that have adopted a similar framework

Box X.1: Offering Savings Products to Low Income Population

One example of a financial intermediary in LAC that has been offering savings products to low income population is Financiera Comultrasan, a credit union in Colombia committed to the social development of vulnerable communities in rural areas. With over 50 years of experience, this institution provides financial literacy and financial solutions tailored to low-income populations. Currently, Financiera Comultrasan has over 100,000 savings clients. Its most successful savings product, “Ahorro programado de libre destino,” has a low minimum opening balance and an interest rate of up to 8%, with no fees related to operational costs. In 2012, 52% of the credit union’s clients were women and 40% of its client base was located in rural areas. Sixty percent of the beneficiaries are micro and small entrepreneurs, heads of households, and students with an average monthly income of USD 200. Financiera Comultrasan reports approximately 80,000 active accounts to date.

are Mexico, Chile, and Brazil. The use of simplified accounts is still limited in Africa. To the best of our knowledge, only few countries such as South Africa, through the Mzansi accounts, and Morocco have experimented with this approach at a relatively large scale. Micro, Small and Medium Enterprises (MSMEs) which account for the vast majority (more than 90%) of companies in LAC, also face challenges in accessing finance. It is estimated that 40% of MSMEs in LAC region need credit but have neither a loan nor an overdraft (Stein, Goland and Schiff, 2010). In comparison, an estimated 78% of companies in Sub-Saharan Africa need a loan or a line of credit from a financial institution. Finally, it is important to note that a large proportion of the population in the LAC region regularly receives various kinds of payments, such as government subsidies and international remittances. Specifically, more than 129 million people benefit from conditional cash transfers (CCTs) in more than 19 countries in the region. Also, in 2011, the total volume of international remittances sent to the countries of the region reached USD 61 billion, exceeding by USD 20 billion what Africa received in remittances over the same period. Studies show that only 10% of the LAC population uses an account to receive government payments, and only 4% to receive international remittances. By contrast, in Africa, 8% of adults use their account to receive remittances. The majority of CCT recipients in LAC remain unbanked, and less than half of international remittance recipients have a bank account, which suggests that the use of cash prevails among this population. These payments are an important means of achieving financial inclusion, and experience has shown that when business strategies are adequately developed to reach low-income populations, they become users of financial products.3 Experience from the MIF has shown that efforts to bank remittance customers are most successful when they include the following: (i) focused strategies with financial products linked to remittances, (ii) financial literacy and marketing tailored to the target population, and (iii) payment mechanisms that the client can trust. In regards to micro-insurance, there is also limited information. A recent IDB/MIF study on the 2012 micro-insurance landscape suggests that 44.9 million people in 19 countries in LAC benefit from micro-insurance. However, 90% of those who hold an insurance policy come from five countries only—Mexico, Brazil, Colombia, Peru and Ecuador—and 55% of that total is concentrated in Mexico and Brazil (McCord, Tatin-Jaleran and Ingram, 2012). The most common product is life insurance, followed by accident insurance, property insurance and health insurance. Similarly to other financial products for low-income people, micro-insurance has a significant potential to advance in terms of regulation, distribution channels and accurate information tailored to this segment.

2.2 Innovative Delivery Channels of Financial Services in LAC

Access to financial services in LAC remains limited in part due to the high cost of intermediation. The minimum cost of opening an account represents, on average, more than 5% of GDP per capita in Latin America, and the cost to keep an account open is about 2% of GDP per capita. For the lowest income quintile, the cost of opening an account represents more than 30% of